Everyone has a unique situation which leads to specific questions. Following are a few questions that seem to come up with some frequency. Of course, don’t hesitate to give us a call or contact your tax professional to discuss your particulars. Often it’s the questions that you don’t know to ask that cause the most trouble.

I’m selling a property in State A. Does the replacement property have to be in the same State? No. You can exchange properties across state borders without restriction. You can also exchange property to and from US possessions (Guam, Puerto Rico).

I’m selling one property. Do I have to replace it with one property or can I exchange into multiple properties? You can exchange into as many properties as you like. In fact this is an excellent way to spread your risk between different types of properties and various locales. Refer to the rules of identifying replacement properties for further discussion.

I’m selling my vineyard/orchard. Do the vines/trees qualify as real property for a §1031 exchange? The trees/vines are considered qualified property for the purposes of §1031. Any unharvested crop however is considered inventory and does not qualify for deferral.

I’m selling a single family residence that has been used as a rental. Do I have to exchange into another single family residence? No. Qualified real property for the purposes of §1031 are very broad. The property has to be for use in a trade or business or held for investment. You can exchange between raw land, apartment buildings, warehouse, farmland, single family residence, condominium, retail buildings, and any other kind of real estate (including leases over 30 years, parking spots, boat slips, and some interests in oil, gas, and minerals). You cannot exchange into or out of your personal residence.

I live on a large parcel where my home is located but I also ranch/farm the property. Does this mean I can’t utilize a §1031 exchange? Not necessarily. Even though there is only one piece of property you can possibly separate your activities. Your residence and some amount of the surrounding land can be sold under the rules for the sale of a principal residence (IRC §121). The farm/ranch portion can be sold under the provisions of IRC §1031. See your tax advisor…this can be a powerful tax planning tool.

I am a partner in a partnership and the partnership is selling real property. Can I exchange my portion of the sale? No. The partnership is the owner of real property and can enter into a tax deferred exchange. You are the owner of a partnership interest rather than real estate. This is a situation where it is important to consult your tax advisor well in advance of the proposed sale as there are potential planning opportunities given enough lead time.

I am going to carry a note (owner financing) on the property I am selling. Does this qualify for §1031 treatment? No it does not. The note is considered boot, however the news isn’t all bad as the note may qualify for installment sale treatment allowing you to pay the capital gains tax as you collect principal payments. Consult your tax advisor.

I have seen the term TIC used in conjunction with §1031 exchanges. What are these? These are investment opportunities offered through broker dealers. A sponsor purchases a large property which typically has triple-net leases with well qualified tenants. Tenancy-in-common (TIC) interests are registered with the securities and exchange commission as securities. The promoters of these investments rely on legal opinions that these investments qualify as real estate for §1031 purposes. Consult your tax advisor.